Weekly Report - 07 February 2019 (WR-19-05)

TRACKING TRENDS

MEXICO | Tax break for Pemex. On 5 February, Mexico’s President Andrés Manuel López Obrador declared that his government will soon announce new measures to reduce the fiscal burden on the state-owned oil firm, Pemex. The announcement came after, on 29 January, international credit ratings agency Fitch Ratings downgraded Pemex’s credit rating from ‘BBB+’ to ‘BBB-’ with a ‘negative’ outlook, citing Pemex’s substantial tax burden as one of the factors in its decision. Pemex currently holds US$106bn in financial debt, the highest of any national oil company in Latin America. Fitch’s downgrade only came a day after Mexico’s finance ministry (SHCP) had communicated that Pemex’s crude oil production has fallen from an average of 3.4m barrels per day (bpd) in 2004 to 1.8m bpd in 2018. To strengthen Pemex’s financial position and productive capacity, the SHCP also announced a series of measures that would shift the company’s strategy towards greater investment in exploration and production projects. The ministry said that the aim was to standardise Pemex’s cost deduction limit in both extraction and exploration, as well as improve its fiscal terms, and thus release around M$11bn (US$576m) per year, which would mean M$66bn up for investment by 2024. A new fiscal regime would also be designed for projects with secondary and tertiary recovery. Finally, the SHCP re-stated its commitment to strengthen corporate governance, as well as improve Pemex’s performance monitoring. However, it appears that these measures have been deemed insufficient to strengthen Pemex’s financial position and that the López Obrador government is now looking for more ways to achieve this.